European shares rise after Fed fuels rate cut hopes

Jeannie Matthews
July 13, 2019

US stocks edged higher and the dollar fell as hopes rose for an imminent interest-rate cut, while oil futures were little changed as supply worries triggered by a tropical storm were offset by signs of a global surplus for several months. On Wednesday, stocks closed record highs after Federal Reserve Chair Jerome Powell signaled rate cuts in the U.S.

Wall Street had been dully circumspect, with the Dow ending Tuesday down 0.08 percent, while the S&P 500 added 0.12 percent and the Nasdaq 0.54 percent. It is up 0.4% or 111 points. Cigna Corp surged more than 12%, leading gains on the S&P 500, while drug distributors such as McKesson Corp rose 2.2%.

The Nasdaq Composite .IXIC was up 32.70 points, or 0.40 percent, at 8,228.74.

That follows data from Thursday that showed underlying consumer prices increased in June to an nearly one-and-a-half year high. Inflation rose 1.6% year-over-year in June, as expected, but core inflation rose slightly to 2.1%, versus the expected 2%.

Despite the June non-farm payrolls data still pointing to a robust jobs market, Powell said that the case for lower U.S. interest rates has strengthened, citing "crosscurrents" pertaining to trade tensions and global growth, while the muted United States inflation no longer appears transitory.

But according to Reuters, the signs of a pick-up in underlying inflation could temper "financial market expectations of a 50 basis point cut at the end of the month and views that the Fed would lower borrowing costs at least twice this year".

In his prepared remarks to lawmakers at the House Committee on Financial Services, where he testified on the Semiannual Monetary Policy Report, Powell said many participants of the Fed's Federal Open Market Committee (FOMC) "saw that the case for a somewhat more accommodative monetary policy had strengthened".

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In the first day of testimony before the Congress, Powell said the USA economy is still under threat from disappointing factory activity, tame inflation and a simmering trade war.

Investors have taken Powell's comments as confirmation that rates are headed lower at the Fed's next meeting on July 30-31.

Powell is set to continue with his testimony later Thursday, this time before the Senate Banking Committee.

In Treasuries, benchmark 10-year notes last fell 2/32 in price to yield 2.1272%, from 2.12% late on Thursday.

The Fed raised rates four times in 2018, drawing the ire of President Donald Trump, who has called the central bank clueless by pursuing needless rate hikes that have slowed economic growth and depressed stock gains.

As tame US inflation continues to worry, the Labor department's June consumer price index (CPI) data will be closely watched.

"The longer-run vitality of the USA economy would benefit from efforts to address these issues", Powell said.

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